This is a time of distinct change and if you’re hoping to secure a mortgage as a first time buyer, buy to let, or otherwise, you need to be prepared for the fact it may not go according to plan.
As of the 26th of April the Mortgage Market Review (MMR) came into effect. The changes basically come down to increased scrutiny of your affordability. Some lenders have already introduced the changes with noticeable differences.
The increased scrutiny comes from with FCA ruling that the lender is fully responsible for assessing whether the customer can afford the Mortgage. Much of this is open to interpretation and with that brings uncertainty and fear of doing the wrong thing which in turn means lenders are definitely airing on the side of caution.
It doesn’t necessarily mean that if you have a good job, manageable financial outgoings, and a more than fair credit scoring that you will be approved. One of my clients found themselves being questioned about a £16 monthly direct debit leaving their account It was pet insurance, only £16, and it was scrutinised – their application is still ongoing.
Another client was recently declined on one application following scrutiny of a bank statement that showed a debit from an online betting service. That particular debit coupled with extensive use of a pre-approved overdraft on more than one occasion was deemed too much of a risk!
Gone are the days where you can walk into your bank and sit down with a bank clerk to fill in your mortgage application forms. Your bank is obliged to provide you with mortgage advice, which means hiring qualified staff to provide this.
Unfortunately this way of working will result in mortgage applications taking much longer to process. You may even find the questions being asked of you are pedantic. For first-time buyers it will be tougher, which is partly due to not being able to demonstrate previous house owning experience. More mortgage applications will be declined, but not indefinitely, it will be a case of starting the application process again.
Proactive action can be taken to ensure this process runs smoothly. It’s a matter of getting your administration and finances in order and paying particular attention to the points below:
Register on the electoral roll at your current address
Ensure all your debts are registered to your correct name and current address
Keep up to all your agreed repayments
Close down any credit agreements you no longer use
Try not to live in your overdraft
Ensure your name is on household bills
Prepare your bank statements, you will be asked to share these
Ensure your most recent pay slips are accessible.
I am simplifying this, but the number of clients I speak to who say they earn approximately so much? That’s not good enough anymore, physical proof is needed and not just the best three wage slips you can find, they have to be the most recent.
I mentioned living in your overdraft, if this is a reality of your finances you should think again before applying for a mortgage. Your bank statements will be scrutinised and if you’re always in the red but have regular debits for eating out, gambling, fashion shopping, salon treatments; anything that could be classed as unnecessary, then my advice would be to curb the spending. Spending without reasonable finances to back it up will only demonstrate you are not fit to take on the responsibility of a mortgage. I’d work on staying in the black before applying.
It’s about being prepared to be scrutinised and think again if you’re planning a short term fix to get you through. You’ll be tested on your affordability in the present time, up to five years and beyond, with a lender trying to make the right decision for now and tomorrow – this is not going to be easy!. Still unsure where you stand? Speak to an independent mortgage advisor who will take you through the changes.